By AllianceDBS Research
Target price: RM24.92
IN the second quarter of 2017 (2Q17), Petronas Dagangan Bhd (PetDag) registered core earnings of RM228mil, which led to a 6% year-on-year (y-o-y) rise.
This rise was driven by lower impairment of subsidy receivables, and a 4% lower effective tax rate: 23% in the second quarter of financial year 2017 (2QFY17) versus 27% in 2QFY16.
Its core earnings for the first half of financial year 2017 (1HFY17) were RM473mil, which were both AllianceDBS Research’s and consensus’ expectations.
The firm declared an interim dividend of 14sen, also within AllianceDBS Research’s expectations, as the group typically declared higher dividends in the second half.
Retail revenue improved by 18% y-o-y to RM3.4bil, supported by a 24% y-o-y increase in average selling price (ASP). The ASP rise was led by both higher Mean of Platts Singapore and higher diesel prices, despite being partially mitigated by 4% reduction in sales volume.
Retail operating profit grew by 31% y-o-y to RM154mil in 2Q17, also helped by higher ASP and lower impairment of subsidy receivables.
Operating profit rose by 17% y-o-y to RM155mil, driven by higher contributions from the aviation segment and lower operating expenses.
In spite of fluctuations in oil price, the research firm believed that the company was poised to experience lower earnings volatility going forward due to weekly adjustment of retail selling prices.
By AffinHwang Capital
Target price: RM1.25
MALAYSIA Building Society Bhd’s (MBSB) second quarter of 2017 (2Q17) net profit rebounded by 44.6% year-on-year (y-o-y) to RM91.1mil but it fell 10% quarter-on-quarter (q-o-q).
The y-o-y rise was due to improved operating income and a decline in allowances, while the q-o-q fall was driven by higher operating expenses. The first half of 2017 (1H17) operating income was up 9.4% y-o-y as funding pressure eased, resulting in a net interest-margin (NIM) improvement of 20 basis points (bps) y-o-y.
The overall gross loan and financing rose by 3.6% y-o-y, as the bulk was driven by 28% y-o-y expansion in the corporate loan segment. Overall, results were within AffinHwang Capital’s expectations.
On Aug 18, MBSB had obtained Ministry of Finance’s approval for its proposed acquisition of 100% interest in the shares of Asian Finance Bank (AFB).
Based on AFB’s 1Q17 annualised return on equity (ROE) of 1.1%, AffinHwang Capital does not expect the acquisition to positively impact MBSB materially.
AFB is burdened with a high cost-to-income ratio of 82.5%, as of 1Q17, while the estimated net profit margin is thin at 1.7% when compared to the average banking sector’s NIM of 2.2%-2.3%.
Despite the anticipation of an improving earnings outlook, AffinHwang Capital is ceasing coverage on MBSB as the stock’s 2017-2019 estimates ROE is expected to stay below its minimum expectation of a 10% investor’s cost of equity.
By Kenanga Research
Target price: RM83.90
NESTLE (M) Bhd’s first half of 2017 (1H17) net profit of RM392.5mil accounted for 58% of Kenanga Research’s estimates and 59% of consensus’, falling broadly within expectations. The research firm expects a weaker 2H17 due to slower post-seasonality demand.
The interim dividend of 70 sen is also within Kenanga Research’s expectations.
The 1H17 sales of RM2.7bil grew by 4% year-on-year (y-o-y) due to better performance in the domestic and export markets. This is driven by commendable reception of new products in both markets.
However, 2Q17 revenue of RM1.3bil recorded a 6% quarter-on-quarter (q-o-q) decline attributable to the softer demand during the fasting season.
This is different to 1Q17 where consumer expenditure was more vibrant with the Chinese New Year season. Net profit for 2Q17 was RM162.1mil with a 30% q-o-q decline and higher effective taxes of 23.7%.
The research house said gross profit saw a 3% y-o-y decline and 14% q-o-q fall, likely due to higher unfavourable foreign exchange (forex) exposures towards imported commodities.
Effective cost management strategies adopted by the group since late financial year 2016 (FY16) supported profit before tax (PBT) to register flattish growth at RM503.3mil, which yielded a less than 1% y-o-y rise.
Despite presumably weaker consumer sentiment, Nestle Malaysia continues to demonstrate growth prospects thanks to new product innovations to stimulate market appetite.
While the average forex trend could further challenge profitability in the short term, the group’s earlier investment to improve its cost management controls could keep margins sustainable.
Thus, Kenanga Research maintains its call of “market perform” with an unchanged target price of RM83.90.
The valuation is based on an unchanged price-to-earnings ratio (PER) of 28.0 times FY18 estimates earnings per share.
By Hong Leong Investment Bank Research
Target price: 95 sen
HONG Leong Investment Bank (HLIB) Research noted that Evergreen Fibreboard Bhd reported first half 2017 core net profit of RM20.3mil, accounting for 25% of the research house’s full-year forecast.
HLIB said earnings were affected by higher-than-expected log and glue cost.
It added that this was also due to longer-than-expected shut down of plants for scheduled maintenance, due to the shortage in supply of rubberwood.
“Second quarter 2017 core net profit fell by 10% to RM9.6mil, due to longer than expected scheduled plant shut down for maintenance of more than a week during the Ramadan festive period.”
The research house pointed out that core net profit in the second quarter declined by 32.8% to RM9.6mil (from RM14.3mil in the second quarter of 2016.
“This was due to lower sales volume as supply of rubber wood remained tight, and the scheduled plants shut down for maintenance during the Ramadan festive period.”
First half revenue rose by 3.1% to RM508.5mil due to higher average selling price as Evergreen emphasised on higher premium products.
“However, core net profit declined by 50.4% to RM20.3mil, mainly attributed to higher log cost (due to the wet weather condition) and glue cost (due to the volatile oil price).
“We opine that Evergreen’s earnings will improve from second quarter low, underpinned by commencement of operation of the new particleboard line and additional ready-to-assemble (RTA) furniture line,” the research house said.
HLIB also said it expects log prices to start stabilising after the ban of rubber wood exports by the Government.
“We continue to remain positive on Evergreen mainly on the back of its turnaround plan and the commissioning of the second RTA line.
“The still weak ringgit against the dollar will directly contribute to the topline positively.”